23 February 2014

Papua New Guinea extends the olive branch to Bougainville

OXFORD BUSINESS GROUP

A LANDMARK visit in January by Papua New Guinea’s Prime Minister, Peter O’Neill, to the semi-autonomous island province of Bougainville, has paved the way for reconciliation and renewed commercial interest in the region.

Bougainville’s name remains synonymous with the controversial Panguna Copper Mine, which closed in 1989, after protests over environmental damage and royalty distributions escalated into a decade-long civil war between Papua New Guinea (PNG) and the island.

Owned by Bougainville Copper Limited (BCL), whose largest shareholder is Rio Tinto, Panguna was the world’s largest open air copper mine in its heyday, making the island one of PNG’s most advanced provinces.

Yet its autonomy and distance from the mainland has led to Bougainville capturing little, if any, of the trickle down from PNG’s liquefied natural gas (LNG) windfall, with development arguably reversing on the island of around 200,000 people during the past 15 years.

O’Neill’s visit, which marks the first by a serving prime minister since a ceasefire was signed in 1998, looks set to usher in a new era of relations and investment. Breaking arrows in a traditional reconciliation ceremony held jointly with Autonomous Bougainville Government (ABG) president, John Momis, O’Neill announced a $590,000 development package for the island, while promising to invest $2.14bn in the province over the next five years.

Bougainville’s needs echo PNG’s own development priorities, with infrastructure, services, health care and employment all featuring high on the list.

O’Neill’s development package includes funds for roads around the provincial capital, Buka. During the trip, the minister for state-owned enterprises, Ben Micah, who accompanied O’Neill, also announced plans to reopen Bougainville’s international airport, Aropa.

The government hopes that flights operated by the national carrier, Air Niugini, will be re-established within three months, paving the way for the resumption of international connections to the Solomon Islands. The plan to reopen the airport is expected to improve the delivery of goods and services, while boosting the local economy.

The measures are widely regarded as the first steps in a programme of reconciliation, setting the stage for future dialogue.

The ABG, which is now officially recognised by many governments, has made overtures towards resuming operations at the Panguna copper mine on its own terms. While an agreement has yet to be made, BCL chairman, Peter Taylor, recently proposed a five-year timeline leading to the reopening of the mine, which dovetails with an impending independence referendum to be tabled in Bougainville between 2015 and 2020.

Bougainvillians have long identified much more strongly with their South Pacific, Melanesian neighbours than PNG.

The desire to be seen as distinct from mainland PNG was a major source of tension over how earnings from the Panguna mine were distributed and also lies at the root of the independence movement. Before the mine’s closure, Bougainville received 1.23% of the government’s 5% royalty commission.

Yet without mining revenues, Bougainville’s economy has stagnated, relying, in part, on assistance from the central government. Resurrecting its mining operations is seen as Bougainville’s only means of achieving independence.

However, a move to reopen Panguna will not be straightforward. Hostility is expected from landowners, while feelings still run high among those who suffered during the war.

Despite the challenges that exist, the fact that the BCL remains listed and is still trading on the Australian Stock Exchange 25 years after the mine closed has instilled optimism in some that the mine could reopen.

However, with Bougainville’s independence remaining tied, at this juncture, to Panguna, the question of whether the island can operate as an independent state remains the subject of heated debate.

Commenting on the issue in an interview given to the Australian media, Taylor questioned whether independence was the best option for Penguna. “If Bougainville is the world’s newest nation, with no track record of managing projects, as opposed to PNG which has a long track record, it’s going to be easier to raise the money if Bougainville doesn’t go down the independence route,” he said.

While the nature of PNG’s partnership with Bougainville has yet to be defined, investors will watch with interest to see how relations between the governments in Port Moresby and Arawa develop, against a backdrop of untapped minerals.